We model a safe asset market with investors valuing safety, investors valuing liquidity, and constrained dealers. While … safety investors and liquidity investors can interact symbiotically with offsetting trades in times of stress, we show that … liquidity investors' strategic interaction harbors the potential for selffulfilling fragility. Surprisingly, standard flight to …

We develop a structural credit risk model to examine how the interactions of liquidity and default risk affect …, our model generates rich links between liquidity risk and default risk. The introduction of macroeconomic risks helps the … model capture realistic time variation in default risk premia and the default-liquidity spiral over the business cycle …

We develop a structural credit risk model to examine how the interactions of liquidity and default risk affect …, our model generates rich links between liquidity risk and default risk. The introduction of macroeconomic risks helps the … model capture realistic time variation in default risk premia and the default-liquidity spiral over the business cycle …

oscillate without any fundamental shock. With patient investors, the equilibrium is driven instead by a resale effect: Liquidity … under asymmetric information. An endogenous composition effect emerges whereby high liquidity alters the quality of the pool … of sellers and decreases future liquidity. With impatient investors, cyclical equilibria arise: Price and volume …